Correlation Between Walmart and MidCap Financial

Can any of the company-specific risk be diversified away by investing in both Walmart and MidCap Financial at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Walmart and MidCap Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Walmart and MidCap Financial Investment, you can compare the effects of market volatilities on Walmart and MidCap Financial and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Walmart with a short position of MidCap Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walmart and MidCap Financial.

Diversification Opportunities for Walmart and MidCap Financial

0.94

Correlation Coefficient

Walmart  MidCap Financial

Almost no diversification

The 3 months correlation between Walmart and MidCap is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and MidCap Financial Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MidCap Financial Inv and Walmart is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Walmart are associated (or correlated) with MidCap Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MidCap Financial Inv has no effect on the direction of Walmart i.e., Walmart and MidCap Financial go up and down completely randomly.

Pair Corralation between Walmart and MidCap Financial

Assuming the 90 days horizon Walmart is expected to generate 1.13 times more return on investment than MidCap Financial. However, Walmart is 1.13 times more volatile than MidCap Financial Investment. It trades about 0.29 of its potential returns per unit of risk. MidCap Financial Investment is currently generating about 0.2 per unit of risk. If you would invest  7,223  in Walmart on October 8, 2024 and sell it today you would earn a total of  1,613  from holding Walmart or generate 22.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Walmart  vs.  MidCap Financial Investment

Walmart

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Walmart reported solid returns over the last few months and may actually be approaching a breakup point.

MidCap Financial Inv

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MidCap Financial Investment are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, MidCap Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walmart and MidCap Financial

The main advantage of trading using opposite Walmart and MidCap Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart position performs unexpectedly, MidCap Financial can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in MidCap Financial will offset losses from the drop in MidCap Financial's long position.

The idea behind Walmart and MidCap Financial Investment pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.